Default danger over; Rates now under 30 percent, but wiser borrowing still needed

In 2010, over 30 percent of former Lane Community College students defaulted on their student loans. In 2011, it happened again. One more time and the federal government would revoke the college’s ability to offer federal student loans. It looked like a disaster — or so it seemed. LCC administrative staff went into action and found mistakes.

On Wednesday, April 2 Lane President Mary Spilde said “The Department of Education agreed with us on many of the mistakes and our official rate has been reduced to 27.4 percent. This restarts the clock for us. Our 2012 draft rate is also under 30 percent.” Lane’s default rate for 2012 was 27.2 percent.

One woman led the charge to crunch the numbers, recheck the documentation and verify the results. When the effort was finished, Helen Faith, the director of financial aid at LCC, had helped bring the college back into the safe zone. She said it came down, in part, to some sloppy paperwork.

Faith explained that when an agency begins collecting payments on a student loan, everything must be documented. Did the students who defaulted receive a letter? Did they receive a phone call? Did they receive full grace period? Are they deceased?

If a loan’s records are incomplete, that loan does not count against the college as a default.

An audit by the US Department of Education showed that Lane’s student loan records from 2011 contained numerous lapses, Faith pointed out. But, she explained, some loan agencies were still including loans with incomplete records in the overall default rate for the college. “Most of the changes that should have been made were not,” she said.

After reviewing records at the Department of Education, the college showed that 37 students in default had incomplete records and filed an appeal to recalculate the default rate. “They just didn’t have the details of how that loan was serviced,” Faith said about mistakes made by the loan agencies.

Loans keep LCC students afloat

LCC is no longer in immediate danger of losing federal funding, but the debt issue is not going away: the majority of students at LCC rely on loans.

Christina Bailey, a second-year student at LCC, says she depends on financial aid. “I’m over $10,000, easy, just with one loan,” she said. Working on an associate’s degree in animal science, she wants to transfer to Oregon State University. “I’ve been hoping to get scholarships,” she added, to pay expenses at OSU.

Bailey, like most students at LCC, depends on federal financial aid in order to pay tuition. In 2012, 71 percent of LCC students used federal financial assistance, according to a report from the Association for Community College Trustees, a national nonprofit that provides support and guidance for community college boards.

LCC has one of the higher rates of borrowing in the country, says Jee Hang Lee, vice president for public policy and external relations at ACCT.

Lee explained that the ACCT selected LCC to participate in a national study on student loans, in part, because of the high rate of borrowing. “What we wanted to do was work on a report that would help some of the institutions examine their data,” he said, referring to Lane as the “high water mark” in terms of default rates among the nine colleges that participated.

The vast majority of students who defaulted did not complete their degree: the ACCT found that 96 percent of defaulters did not finish their degree or program at LCC. That means only four percent with degrees defaulted. “What we found is: completion matters,” Lee said. “It shows the importance of students continuing and getting a degree.”

A perfect storm

Faith said the reasons for the rise in student loan defaults were largely out of the college’s control.

One reason, she explained, was the higher-than-average toll the economic recession took on Lane County. Data from the US Department of Labor Statistics backs up that claim: unemployment in the county peaked in March 2009 at 13.5 percent and did not dip below 10 percent until April 2011 — a time when many students were defaulting.

Another contributing factor: the federal government revamped its student loan program so that multiple loan agencies would service loans instead of a single agency.

Faith said that for LCC, seven companies are involved, which adds another level of complexity for both students and administrators. “Students are starting to get mail from multiple entities they don’t recognize,” she said. “Sometimes people just shred that stuff.”

In 2010, the federal government switched from a two-year reporting cycle to a three-year cycle. That meant LCC did not hear about the 2010 default rates until 2013. “We went, ‘Oh my goodness, what happened?’” Faith said. “We really didn’t have any inkling.” The prior year’s default rate was 19.5 percent.

Some claim the default rate was inflated because a few students cheated the system by taking out loans and then never going to class, but Faith said she doubts that was a significant factor. “That’s the reality at any college,” she said. “Even at graduate schools. It’s got to be a really small percentage of the population.”

LCC was not the only affected college in Oregon. In 2010, Klamath Community College had a default rate of 33 percent while Umpqua Community College led the state with a 38.5 percent default rate, according to a report by the Oregonian.

The future

Kerry Levett, executive dean of academic and student affairs, said she has faced this challenge herself: when she was younger, she struggled to make student loan payments.

What she did, she said, was simple: she called the loan agency and explained she was having trouble paying the bills for her student loan. “They were very kind and appreciative that I reached out,” she said. “I negotiated with them a payment I could afford.”

LCC is exploring ways to improve outreach to students about repaying loans, Levett explained, but ultimately it is the student’s responsibility to pay back the loans.

Her advice to students today: sometimes all it takes is a phone call to work out a new plan for paying back the debt, she explained. “They work with individuals if their income has changed,” Levett said about loan agencies.

“This is about managing your debt,” Levett added. “It’s a part of many people’s lives. You’ve got to be smart.”

Levett and Faith both recommend that students sign up for the American Student Assistance SALT program, a web-based service that offers free financial advice, lessons and information to students seeking to pay for college in a financially responsible way.

Student loans are more forgiving than other kinds of debt, Faith explained. “They might not realize what their options are and throw their hands up in the air,” she said about students struggling to make loan payments.